Executive Summary

As financial planning for clients grows more and more complex, it becomes increasingly difficult for planners to recognize every planning issue, opportunity, and concern from memory alone. As a result, there is an rising risk that planners commit malpractice and make a mistake – albeit by accident – in the struggle of trying to apply everything they have learned to an incredibly wide range of client situations.

However, the reality is that this challenge is not unique to financial planning. Many professions face a similar struggle, where the sheer amount of knowledge required, and the incredible number of client/customer/patient situations make it almost impossible to remember everything that’s necessary at the exact time it’s needed, mean a rising risk of mistakes, negligence, and ineptitude.

So what’s the solution to address this challenge? As it turns out, there’s a remarkably simple one: checklists. While it may seem absurd that such a basic device could enhance client outcomes – in fact, as professionals we often bristle at the thought that a checklist could tell us something we don’t already know – it turns out that checklists may be an excellent means to deal with the simple fact that we are all fallible humans.

Unfortunately, though, few checklists currently exist in the world of financial planning, especially outside of the operational aspects of an advisory firm. Nonetheless, it is perhaps time to give checklists the recognition they deserve, as a potentially critical step to ensure that we apply the proper due diligence to each and every complex financial planning situation, and that nothing accidentally slips through the cracks.

The inspiration for today’s blog post is the book “Checklist Manifesto” by Atul Gawande, a doctor who was the primary driver behind the World Health Organization’s “Safe Surgery Checklist” and who makes a compelling case that checklists should probably be adopted more broadly in all industries and professional services – including financial planning – as a way to deal with the incredible complexity that we face as practitioners.

Ignorance Vs Ineptitude

It’s important to recognize that in many situations, professionals fail simply because the task at hand was beyond saving; we may have tremendous intelligence and technology available to us, but we are not omniscient or all-powerful, and some fallibility is inevitable. However, Gawande notes research by Gorovitz and MacIntyre who find in the medical context that in situations where success or failure is within our control, there are two primary drivers that lead to failure: ignorance, and ineptitude.

Ignorance has been the driving force for failure for most of medical history. Up until just the past few decades, we simply didn’t know what the true causes were for many diseases and maladies, much less how to treat them or fix the underlying causes. For instance, Gawande notes that as recent as the 1950s, we still had no idea what actually caused heart attacks or how to treat them, and even if we’d been aware of contributing factors like high blood pressure, we wouldn’t have known how to treat that, either. If someone had a heart attack and died at the time, it was our collective ignorance of the underlying problems that led to the “failure” to save the patient.

By contrast, in today’s environment, we have developed numerous drugs to treat high blood pressure, as well as heart attacks themselves. We “know” how to fix an astonishing range of maladies. If an ineffective (or even harmful) treatment is applied now, we don’t simply let the professional off the hook on the basis of “well, we didn’t really know what to do, anyway.” In other words, our collective ignorance of how to treat a problem is often no longer an acceptable answer when there is an unfortunate outcome; instead, a failure of the professional is an “error” and a sign of ineptitude.

Of course, the caveat is that many of the professional situations today are of a highly complex nature. While we might understand far more about the body and how to treat it than in the past, it is still remarkably complex, and many “failures” of a medical practitioner still walk a fine line between ignorance, ineptitude, and a situation that was never really able to be saved in the first place. As a result, Gawande notes that we’re more likely to address such situations by encouraging more training and experience for the practitioner, rather than to punish failure, as long as outright negligence was not involved. Unfortunately, though, it’s not clear if more experience and training alone are necessarily sufficient; as our knowledge increases, so too does the complexity of applying it correctly, to the point where we may be reaching our human capacity to apply such a depth of knowledge to such a breadth of situations in a consistent manner. We are still only human ourselves, after all.

Managing Through Complexity With Checklists

So what’s the best way to manage through such an incredible depth of complexity? Gawande notes that the World Health Organization’s classification of diseases now categorizes more than 13,000 ailments, and one study of 41,000 trauma patients in Pennsylvania found that doctors had to contend with 1,224 different injury-related diagnoses in 32,261 unique combinations. To say the least, the difficulty of providing 32,261 different diagnoses in 32,261 different situations is a challenge of enormous complexity for the human brain. So what’s the solution? Checklists, to at least ensure the big things don’t slip through the cracks.

Initially, Gawande notes that the idea of checklists was soundly rejected in the medical world. Given the complexity of the problems involved, how could a single checklist or a series of them possibly have much of an impact? Yet it turns out that even relatively routine checklists can have a remarkably material effect, for the simple reason that as human beings, we don’t always remember to do every single step in a process the exact same way every time, especially when most of the time it doesn’t really matter. For instance, one early study applying a simple checklist to implant a central line (a catheter placed into a large vein to deliver important medication) to patients: 1) wash hands; 2) clean patient’s skin; 3) put sterile drapes over patient; 4) wear mask, hat, gown, and gloves; and 5) put sterile dressing over insertion site after completion – was found to drop an 11% infection rate down to nearly 0%. It turned out, the doctors were mostly consistent in executing all of the steps, but they occasionally skipped a step for any number of accidental or well-intentioned reasons; nonetheless, being accountable to a simple checklist eliminated virtually all the complications, for what was actually a very simple series of steps. That doesn’t mean patients didn’t still have complex health problems, difficult diagnoses, and adverse outcomes; nonetheless, over a two year span, the initial study estimated that in one hospital alone, the checklist had prevented 43 infections, 8 deaths, and saved $2 million dollars!

And notably, the application of checklists is already widespread in other professional contexts. They are a staple of the airline industry, ensuring that even well-trained pilots never miss a single step in the proper execution of flying the plane; notably, such checklists include important guidance about how to quickly handle a wide range of emergency situations where, even if the pilots are trained, it may be difficult to recall, unassisted, the exact proper steps to execute in the heat of a high-stress moment with adrenaline rushing. Similarly, the construction industry also relies heavily on checklists to ensure that buildings are made properly, and that crucial steps aren’t missed that could result in an utter catastrophe. In addition, Gawande points out that an important ancillary benefit of using checklists in such situations is that, when the checklist requires duties of multiple individuals – and everyone is held accountable to ensure all steps of the checklist are completed – teams end out communicating better, which prevents even more unfavorable outcomes.

Creating Your Financial Planning Checklists

Granted, in the financial planning world, the client situations that present themselves are rarely as dire as landing a plane in an emergency or determining what drugs to administer to a patient who may die in minutes or hours if not properly treated. Nonetheless, the fundamental problem remains: financial planning for individuals with a nearly infinite range of situations entails tremendous complexity, to the point where it’s not clear if anyone could really remember every possible question to ask or step to take; at least, not without the assistance of a financial planning checklist.

One version of a quasi-checklist that financial planners already use is the data gathering form, which through its wide range of blanks to fill in amongst various categories, ensures a fairly thorough review of all the client’s potential financial concerns. If you don’t think checklists can be useful, imagine how effective your financial planning process would be if you had to remember, off the top of your head, to ask every question necessary to capture every single bit of information that’s requested on a thorough data-gathering form. Even those who begin using an agenda to guide client meetings often report they help – as a form of checklist – to ensure that all the key issues are covered in the meeting, and that nothing is overlooked in the midst of a potentially complex client conversation.

Similarly, many technical areas in financial planning require not only specialized knowledge, but an awareness of rare-but-potential circumstances that may arise that provide for unique planning opportunities. For instance, with respect to Social Security alone, how often do you ask an unmarried client over the age of 62 if he/she had a former marriage that lasted at least 10 years (potential divorced spouse benefits), or ask retirees over age 62 if there are they still have any children under the age of 18 (extra retirement benefits for children), or ask if the client had a prior (or current) job where he/she did not participate in the Social Security system (future retirement benefits potentially reduced under the Windfall Elimination Provision). While none of these situations are necessarily common, they do occur from time to time – frequent enough to matter, but not frequent enough to necessarily remember to ask every time. The same is true in a wide range of other planning situations, from whether the beneficiary of an inherited IRA might be eligible for an Income In Respect Of A Decent deduction, to whether a non-qualified annuity was originally funded via a 1035 exchange (which means the cost basis is not merely the premiums paid), to whether a term insurance policy is still convertible (or ever was).

In other words, having a financial planning checklist in each of the various areas of financial planning can serve as a type of “due diligence” process, to ensure that all the important planning issues and opportunities are covered. It doesn’t make the planner smarter or more skilled, but does help to ensure that the planner maximizes the knowledge and skill he/she already has. Arguably, at some point in the future, these might even be codified into a more extensive series of Practice Standards for financial planners – as in the case of doctors, this can ultimately help to distinguish between situations where an unfavorable outcome was due to an error or “ineptitude” mistake of the planner, or was simply a situation too complex to possibly be saved. In practice, effective due diligence checklists might also be integrated into a firm’s CRM software.

Unfortunately, though, the greatest challenge is simply that we need to build our financial planning checklists – a challenging and time-intensive process. Yet perhaps this is an opportunity for the financial planning community to band together and build something collectively. Have you built any checklists in your firm that you would be willing to share? Would you volunteer time and effort to try to help create a series of financial planning checklists for all practitioners to use? Please respond in the comments if you’re interested, and perhaps we can begin this process together. In the meantime, though, it would probably be a good idea to start building some checklists for the most common challenges that arise in your own financial planning firm!

And if you’re still not convinced of the value of a financial planning checklist (or having a series of them!), I’d strongly encourage you to read “Checklist Manifesto” yourself; if you are convinced, you may also find the book provides helpful inspiration on the kinds of checklists that may be useful in your practice and with your clients.

Related

Steven Barrett

In today’s heavily regulated world, it is essential to have check lists in our industry. The regulator insists on so many steps to be followed when advising a client that it is vital that you have some record to prove everything has been followed.

In client meetings, I have been using a meeting agenda for the last year and now I couldn’t do without one. They keep you focused and cut the times of meetings. In financial planning meetings, where there is so much going on, an agenda is a great reminder to talk about crucial matters that are easy to forget, such as the assumptions used.

Alfred Hicks

I adopted a planning checklist in 1994 following exposure to planners in Texas providing workshops to increase client trust and referrals. Although modified over the years, I would not want to return to other methods of acquiring information and a depth of understanding from clients. Lists made a significant difference for my practice.

In a former life I was a submariner, and in that high risk world of complex machinery and systems we still needed simple checklists to ensure that we minimised the risks of error. They are an essential safety mechanism, which is of course why so many dangerous occupations (e.g. military, airline pilots, medicine) continue to use them to this day.

Humans are fallible…they get tired..they get distracted…checklists ensure you do not miss essential steps.

In financial planning the consequences of getting it wrong may not be fatalities, but they can be severe nonetheless.

Any professional should be using checklists to ensure the risk of human error is eradicated wherever possible.

I have been trying to adopt financial planning checklists, but as you touched on — it is a very time intensive and challenging task! I would be more than happy to help create the checklists! I just received an FPA discussion feed this morning that a group of planners wanted to accomplish this exact task as well. It is on everyone’s mind! Thanks Michael for all the great posts!

Nancy Jones

I think the discussion you’re referring to is the All Member Open Forum under Connections–>Communities–>Member Created Communities. There are active members working on developing timelines for various age groups, utilizing checklists. Any FPA member with interest is welcome to join!

Thanks for bringing this important topic to the attention of planners, Michael.

I have also been using meeting agenda’s for years and have found it to be very effective. In addition, I often send a follow up letter or email summarizing the important meeting points as well as action steps. So the letter not only serves my client but also provides a written reminder of what needs to be done by me as well as the client and prevents things from slipping through the cracks.

We use a 46-point financial planning checklist that I am willing to share. Information gathered is used to develop an investment policy statement for each client. Both are very helpful over the life the relationship.

Charlo Maurer

I would love to see your checklist if you wouldn’t mind emailing me a copy.

Thanks so much for offering. I have a list, but it is much shorter and I can see that it could be much more comprehensive.

Hello Mary – would you email your checklist to me at mttarrant@gmail.com if you are still doing so? Thank you for your willingness to share this. I have been using an internal plan prep checklist for years; however, I think it has grown stale. Appreciate it.

Hi Mary, Would love your checklist. Could you share to djmand@comcast.net Thank you very much. Dave

Scott Wellens

HI Mary, I would absolutely love a copy of your checklist. I am working on one right now with a co-worker and will share with you as well when completed. Thanks in advance! scott@fortressplanninggroup.com

Maureen Verduyn

Hi Mary – I realize this is three years after you wrote the offer to share – however if the offer still stands, I would be grateful if you can send it to me as well. mv@financialteam.net

We are struggling through trying to set up our processes and very concerned we are going to miss something!

Hi Mary, I’d love to see your checklist to help compare ours. Can you please send a copy to dennisl@mfacorp.com? Thank you!

Barry O’Brien

Hi Mary, I know it’s a dated offer but if you can I would like to take a look. Can you please send a copy to barry@obrienam.com? Always trying to improve. Thanks for your generosity.

Scott

Hello Mary,
If you are still checking this post/receiving e-mails I would love a copy as well. scott@inmrktlabs.com

Thanks!
Scott

Casey Herron

Hello Mary! I appreciate the opportunity to have your 46-point checklist or if there is anyone else out there willing to share their checklist. My email is Herron.casey@gmail.com. Thanks!

Jenny

Good to know that FPA is working on this and that you were able to incorporate some of those points and resources in your blog post.

Virginia Dhondt

I am just finishing up that book! It’s been on my reading list for a while and I finally pushed it to the top. It’s an excellent read.

I agree that we generally don’t use checklists enough. I have heard that every client situation is so unique that a checklist wouldn’t work but I disagree. We use them for some things but I think we could do more.

Melissa

I have been working on an internal checklist for our financial planning department for quite some time and recently started reading the Checklist Manifesto. I would be interested in hearing/sharing thoughts with other professionals.

I think getting checklists in place in our field will be very helpful for quality-control if at the same time we address the essential balance between a helpful checklist-based process versus a checklist process that squeezes the life out of professionalism. Here’s a link that expresses this idea in more detail: http://positivepsychologynews.com/news/jeremy-mccarthy/2013040225730
Paula

Dan

If you want to set-up repeatable checklists and routines you can use this web application:

You can use it to manage your goals, projects and tasks, set next actions and contexts, use checklists, and a calendar.
Syncs with Evernote and Google Calendar, and also comes with mobile version, and Android and iPhone apps.

I’ve thought this for a long time. Is anything now available? With NAPFA, you, Bob Veres and other top minds I’m sure this can be done.

Gavin

Mary, I’m a little late to the party here but I am just beginning the process of developing a comprehensive checklist for my firm and would be interested to see yours if you are still willing to share. Ditto for anyone else engaged in this process, I will be happy to reciprocate. I can be reached at gavin@wateroak.com.

Tom Gartner

This is an important pivot point we can take to further improve our profession. I too just finished the book and was disappointed that it didn’t have a lot of steps to take, but it drove the point home. Checklists can certainly make a positive impact.

While I no longer am a member of the FPA so can’t access the community, google was helpful in finding some financial planning checklist examples, and if you specify filetype:pdf it refines it even more. Invesco has a good one http://bit.ly/1ng0BqS, also Coastal Capital http://bit.ly/1wX49aR.

Realizing that I’m extremely late to this discussion, however per chance that this is yet viewed by someone with a sample copy of Mary’s “46-point financial planning chklst”, may I have a copy sent to jsm6388@gmail.com?

Pedro Piloto

Hi, I developed that app to help people calculate and analise loans, it would be awesome if you tried it and gave me some feedback so I can improve it and add more functionalities:https://goo.gl/YTGOKe

I write about financial planning strategies and practice management ideas, and have created several businesses to help people implement them.